A cynical commentary about developments in the South African financial markets and the incomprehensible activities and pronouncements of bureaucrats and politicians.

Friday, 27 October 2017

AND DON’T EVEN MENTION THE RUSSIANS

Minister
Gigaba told us very little that we did not already know about the poor shape of
the government’s finances. However, his unusual approach was actually to say as
much and while he has been praised mightily for this, the market reaction has
been severe. The prices of South African bonds and currency have plummeted. Those
among us who over the past few years have been able to send a few sacks of cash
to Dubai for safekeeping with our mates are probably feeling very relieved and
smug. The frustrating but telling thing, however, is that all the hand wringing
has been directed at the failure of the income side of the budget to live up to
expectation. Not very much at all has been said about the expenditure side of
the equation. Given that there really are few untapped sources of significant
tax revenue left it is obvious that the axe must be taken to the spending.

Some
astonishing charts have been published highlighting just how much higher almost
all public-sector salaries are, compared to private sector pay. Multiply this by
the massive increase in the number of state employees and to the casual observer,
not needing to influence voters, it seems obvious what needs to be done. Understandably
any threat to their jobs will at the very least prompt massive strike action.
And this should be met by the second leg of the program which is to make
starting a business and hiring (and firing) staff so much simpler and easier. That
is, create a way to soak up the talent and experience that will come onto (and
is already unemployed in) the job market. But that’s two impossible things to
believe on the day before the Currie Cup final.

The unwelcome
consequences of deficits are debt and the cost thereof (aka interest rates).
This is where the irritatingly influential ratings agencies pop up to scrounge
a living, and so they are back in the news again. These analysts are no better
than any others (see next story) yet because of where they work they assume unearned
mantles of authority and infallibility. And because the minister offered some
home truths they have (way too late) gone all angel of doom on us and are
expected to downgrade South Africa yet again. The nation’s debt service cost is
approaching panic station levels. It needs more than Gigaba to start talking specifics
about what our government is going to do. To stop looting the public purse and
dismiss all felons and thieves would be a good start and a way of sending a
great message

News of an
interesting competition came to light recently. Four teams of trainee
investment analysts drawn from different business schools were each asked to
take a close look at a listed company and decide whether to recommend a buy or
a sell. Each team approached the task in a different way using both published
data and hands-on investigations of the firm’s products and markets. This
resulted in the perfect balance of two buy and two sell recommendations. Anyone
who thinks that this lack of consensus is a sign that the students clearly have
a lot more to learn from their courses, should realise that this is the norm
even after graduation. Anything published by a company (which, by the way, they
do only because they have to) is very carefully massaged and managed. Obviously
while shareholders and creditors need to be kept happy and informed there is a
competing desire to keep competitors and the taxman in the dark. Consequently,
it is quite understandable that two different teams can draw conflicting
conclusions. It’s the old glass half empty versus glass half full story. Oh,
the company they analysed? Distribution and Warehouse Network [Dawn].

Events are
such that I’ll be wearing my Sharks shirt in Franschhoek in the Western Cape at
the time of the Currie Cup final that will be played the Shark Tank here in
Durban tomorrow. I have asked my hosts if we will be able to watch at a Sports
Pub but they are dubious if I’ll be welcome. But I have every faith in the hospitality
of all South Africans even when we hoist the Cup. [Apologies to the WP
supporter who was offended last week at the suggestion that the Lions might win
their semi]